Yes: The licence fee must go up. Only the dross will survive unless we have a strong national broadcaster, writes Will Hutton

The full impact of the current rate of advance in communications technology is only just becoming apparent. For example, within five years most of us will be able to watch TV on our iPods and mobile phones. The XBox generation will want to manipulate and edit their TV shows just as they can the games they play. And we will all want to access programmes we have missed from an easily accessible archive, just as we can 10,000 songs on an iPod.

The question is to what degree this avalanche of choice, stimulation and visual experience should be wholly directed by private interests and private values; or to what extent the mixed economy of part-private and part-public that has served Britain so well over the past 50 years of broadcasting should be maintained. The market-share decline of the BBC is guaranteed over the next licence-fee period up to 2013; its bid for a 1.8 per cent real-terms increase in the licence fee is about half the rate of increase of media revenues generally. As a result, the BBC will, if the government agrees to the increase, spend about a fifth of all broadcast media revenue in 2013 - meaning that its relative size will have more than halved in 20 years.

Nor is that all. It is guaranteeing to spend at least a quarter of its TV cash and 10 per cent of its radio cash with outside independent suppliers; it also proposes to compete for a further 25 per cent slice of its TV cash with independent producers in a battle for the best programme ideas (The Window of Creative Competition or 'WOCC'). Privately the BBC reckons that this cash will split 40:60 in favour of the independents. In-house production matters, because after new rules introduced in the 2003 Broadcasting Act, it is programme makers and not broadcasters who own the intellectual property rights to programmes.

This was a proper and good reform, but it means that the BBC has to retain a critical mass of in-house production if it is to retain the intellectual property rights of the majority of its output. Otherwise it will be unable to make its programmes freely available on tens of millions of iPods, mobile phones and web archives, let alone for conventional broadcast. And if it can't do that, its claim to have exclusive use of the licence fee, already under fire because it is losing audience, will be impossible to sustain at the time of the next Charter review in 2016.

If the Treasury gets its way and blocks any real increase in the licence fee, the BBC's in-house spend in 2013 will fall to well below 10 per cent of broadcast media revenues. It will still be larger than individual quoted, shareholder-value driven 'super-indies', who will be emerging though takeovers on the stock market, but the independent sector will be at least as big as it. These independents will be pitching ideas to a plethora of digital and satellite channels battling for market share in a race to the bottom in broadcast values.

Britain's broadcast culture, and with it our wider culture, will change dramatically, weakening public values and experiences held in common - as it has already begun to do.

These trends are irresistible and some of them are welcome: popular does not mean dumbing down; and a strong independent sector, with its outstanding creativity, together with more choice are undoubtedly beneficial. But a BBC so reduced in relative size will be less able to be the custodian of scale production and dissemination of public value broadcasting from news to comedy that has so enriched our lives - and whose competition has kept the wider industry more honest.

Indeed my view, as I report in my Work Foundation report The Tipping Point, is that this much-reduced BBC will be fighting to justify its very being in 2016. To have nearer 15 than 10 per cent of broadcast media revenue spent on in-house production will give it a playing chance of survival in 2016 but for that it needs both a reduction in the scale of the WOCC and a real increase in the licence fee. There is lots at stake over the next six weeks - if we have the wit to see it.

· Will Hutton is chief executive of the Work Foundation

No: People are not being given a choice, but are told they must pay up and shut up, writes David Elstein

Lets not argue about the BBC itself: everyone wants a strong, independent, focused public broadcaster offering real value for money.

But in the all-digital future, every TV set will have decoding equipment built in or attached. It will be possible to charge viewers directly for what they watch, simply and flexibly. We can move from a costly and unwieldy BBC funding mechanism to one which at last delivers accountability, transparency, choice and fairness.

The Burns Committee that advised the government on BBC Charter renewal urged that progress be made over the next few years to move the BBC to a mixed funding model, building up the element of voluntary subscription as we progress towards full digital take-up. The BBC has turned its face against that advice.

Instead, it has submitted a 'big ask', bidding for its licence fee to rise by inflation plus 2.3 per cent every year for seven years. The 'self-help' offered in return by the BBC includes £700 million simply from the increase in the number of TV households, which allows the BBC to 'help itself' to more money from social fragmentation.

Like some leftover from the Stalinist era, the BBC insists on forcing every TV household to buy a single package of services with no choice: one giant size must fit all, and all must pay the same price. Millions too poor to pay taxes are hounded by thousands of licence-funded debt collectors if they try to watch TV without paying the BBC in advance and many cannot even receive some of the services they are required to finance. Hundreds of thousands of people are threatened with court proceedings every year, with the explicit threat of fines, a criminal record and even jail.

Yet the set-top box will make it possible for non-payers simply to be denied access to BBC services: as with the supply of any other goods, choice will become possible. These devices will also enable the BBC to offer a range of services at a range of prices, at last treating viewers like normal customers for normal products. But the BBC hates the idea of choice when it has the option of compulsion.

BBC apologists (such as Gavyn Davies in the Guardian) say that the BBC is great value for money and that most people would pay more than the licence fee to keep receiving what it provides. To which the answer must be: excellent - put it to the test. The BBC has clearly nothing to lose, and those who want to pay more for more from the BBC should be given the opportunity, courtesy the set-top box.

More importantly, the 7 million homes which think the BBC costs too much, and that Davies believes must be forced to subsidise the 16 million homes willing to pay more for the BBC, should also have the chance to decide how much of the BBC they want and how much to spend.

The 'big ask' does not even include the biggest ask: the cost of subsidising the forced migration of analogue homes to digital to meet the government's artificial timetable for switching off the analogue transmission system (a pointless, counterproductive and vastly expensive exercise - but that's another story). The cost of doing this will inevitably take the licence fee over the £200 mark.

Yet it is entirely wrong - and probably illegal - for the licence fee to be used in this way. Analogue switch-off is a government project and should be funded out of taxes, not out of a flat-rate household charge for provision of broadcast services. Renting transmitters is a legitimate BBC activity: installing TV aerials and set-top boxes in people's homes is not, especially as the huge subsidy thereby given to digital terrestrial television is clearly unfair to all other means of distributing television signals.

Worse still, there is a danger of BBC executives deciding which households should receive assistance and which should not. This is dangerous territory. If the government is too scared to fund its risky switch-off plan directly, it should not be using the charter renewal to pressurise the BBC into doing its dirty work.

· David Elstein is former chief executive of Channel Five and chairman of the British Screen Advisory Council